HORACE MANN EDUCATORS CORPORATION 
By SPRINGFIELD, Ill., April 24, 2014 /PRNewswire/ -- Horace Mann Educators Corporation (NYSE: HMN) today reported financial results for the three months ended March 31, 2014:
Horace Mann Financial Highlights
--------------------------------
Three months ended
March 31,
---------
($ in millions,
except per share
amounts) 2014 2013 Change
----------------- ---- ---- ------
Total revenues $261.2 $254.6 2.6%
-------------- ------ ------ ---
Net income 28.4 27.0 5.2%
---------- ---- ---- ---
Net income per
diluted share 0.67 0.66 1.5%
-------------- ---- ---- ---
Operating income* 27.3 22.6 20.8%
---------------- ---- ---- ----
Operating income per
diluted share* 0.65 0.55 18.2%
-------------------- ---- ---- ----
Book value per share 29.47 31.81 -7.4%
-------------------- ----- ----- ----
Book value per share
excluding
the fair value
adjustment for
investments* 24.27 22.38 8.4%
--------------- ----- ----- ---
Property and Casualty
segment net income 14.0 10.2 37.3%
--------------------- ---- ---- ----
Property and Casualty
combined ratio 93.7% 97.2% -3.5 pts
--------------------- ---- ---- --------
Property and Casualty
underlying combined
ratio* 92.1% 95.4% -3.3 pts
--------------------- ---- ---- --------
Annuity segment net
income $12.3 $11.1 10.8%
------------------- ----- ----- ----
Life segment net
income 3.9 4.3 -9.3%
---------------- --- --- ----
* These measures are not based on
accounting principles generally
accepted in the United States
("non-GAAP"). They are
reconciled to the most directly
comparable GAAP measures in the
supplemental numerical pages of
this document. An explanation of
these measures is contained in
the Glossary of Selected Terms
included as an exhibit in the
company's reports filed with the
SEC.
"Horace Mann's first quarter operating income was $0.65 per diluted share, led by strong property and casualty results, as well as solid earnings in our annuity and life segments," said Horace Mann's President and CEO Marita Zuraitis. "Compared to a year ago, the property and casualty combined ratio improved 3.5 points to 93.7%, reflecting improvement in the underlying underwriting margin, including winter weather-related losses. In our annuity segment, assets under management increased 10% over the 12 months, and the interest spread was better than expected. For the life segment, net income decreased primarily due to higher mortality losses. Top line metrics across all three business segments were strong. Property and casualty written premiums were up 4%, annuity sales increased 19% and life sales continued to be strong."
Property and Casualty Segment
The property and casualty segment recorded net income of $14.0 million for the current quarter compared to $10.2 million for the same period in 2013. The total property and casualty combined ratio of 93.7% was 3.5 percentage points lower than the first quarter of 2013. The underlying property and casualty combined ratio of 92.1% decreased 3.3 percentage points compared to the prior year quarter, primarily reflecting improvement in the current accident year auto loss ratio. The auto underlying combined ratio of 100.1% improved 4.7 points compared to last year's first quarter, driven by a 5.1 point improvement in the underlying loss ratio. Pretax catastrophe losses in the current quarter of $6.3 million, or 4.4 points, increased $0.6 million, or 0.2 points, compared to a year ago and the property underlying combined ratio was consistent with last year's first quarter. Favorable prior years' reserve development of $4.0 million, or 2.8 points, was recorded in the first quarter, compared to $3.3 million, or 2.4 points, of favorable development recorded in the prior year.
Total property and casualty written premiums of $137.2 million increased 4% compared to the three months ended March 31, 2013. The growth was driven by increases in average premium per policy for both auto and property accompanied by reductions in catastrophe reinsurance costs.
Horace Mann's property and casualty sales decreased slightly compared to the first quarter of 2013, primarily due to a decline in property new business. Policy retention continues to be strong with the auto policy retention rate for the current period at 85% and the property policy retention rate at 89%, both comparable to a year ago.
Annuity Segment
Annuity segment net income of $12.3 million for the three months ended March 31, 2014 increased $1.2 million compared to the same period in 2013. The first quarter annualized net interest spread of 214 basis points on fixed annuity assets reflected continued solid investment portfolio performance and increased security prepayment activity. The favorable net interest spread, accompanied by the increase in fixed annuity assets under management, resulted in the net interest margin increasing 14% compared to the first quarter of 2013. The deferred policy acquisition costs unlocking in the current quarter had a minimal impact on annuity segment net income compared to a $1.6 million pretax positive impact in the prior year. Total annuity assets under management of $5.4 billion increased 10% compared to March 31, 2013, and total cash value persistency remained strong at approximately 95%.
For the three months ended March 31, 2014, annuity deposits of $100.3 million increased 11% compared to the prior year period, primarily due to an increase in the amount of single premium and rollover deposits received in the current period. For the quarter, recurring deposit receipts also exceeded the prior year amount.
Annuity sales by the company's agency force increased 21% and annuity sales from the supplemental independent agent distribution channel increased 7%, compared to the first quarter of 2013. As a result, Horace Mann's total annuity sales for the current quarter increased 19%, reflecting the increase in single premium and rollover deposits noted above.
Life Segment
First quarter life segment net income of $3.9 million decreased $0.4 million compared to the same period in 2013. In the current period, mortality losses were higher than anticipated, partially offset by an increase in investment income.
For the first quarter of 2014, life segment insurance premiums and contract deposits of $22.8 million were comparable to a year earlier. Life persistency of 96% was also comparable to 12 months earlier. Horace Mann life sales increased modestly compared to the first quarter of the prior year.
Investment Results
Total net investment income of $83.0 million increased 7% compared to the three months ended March 31, 2013, reflecting continued strong performance in the fixed maturity and alternative investment portfolios accompanied by the effects of increased security prepayment activity. Pretax net realized investment gains were $1.7 million in the current quarter.
Horace Mann's net unrealized investment gains on fixed maturity and equity securities of $376.2 million at March 31, 2014 increased 62% compared to the $232.5 million net unrealized gain at December 31, 2013, primarily due to the decline in interest rates during the current quarter. Net unrealized gains were $639.4 million at March 31, 2013.
Capital Management
During the first quarter of 2014, the company repurchased 136,976 shares of its common stock at an aggregate cost of $3.9 million, or an average price per share of $28.21, under its $50 million share repurchase program. As of March 31, 2014, the program had a remaining authorization of $24.5 million. There were 40,647,979 shares outstanding on March 31, 2014.
Webcast Conference Call
Horace Mann's senior management will discuss the company's first quarter financial results with investors and analysts on April 25, 2014 at 9:00 a.m. Eastern Time. The conference call will be webcast live on the Internet at investors.horacemann.com and archived later in the day for replay.
Horace Mann -- the largest national multiline insurance company focusing on educators' financial needs -- provides auto and homeowners insurance, retirement annuities, life insurance and other financial solutions. Founded by Educators for Educators(®) in 1945, the company is headquartered in Springfield, Ill. For more information, visit www.horacemann.com.
Statements included in this news release that are not historical in nature are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties. Horace Mann is not under any obligation to (and expressly disclaims any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company's Annual Report on Form 10-K for the period ended December 31, 2013 and the company's past and future filings and reports filed with the Securities and Exchange Commission for information concerning the important factors that could cause actual results to differ materially from those in forward-looking statements. The information contained in this press release includes financial measures which are based on methodologies other than United States generally accepted accounting principles ("GAAP"). Reconciliations of non-GAAP measures to the closest GAAP measures are contained in the supplemental numerical pages of this release and additional descriptions of the non-GAAP measures are contained in the Glossary of Selected Terms included as an exhibit to the company's SEC filings.
HORACE MANN EDUCATORS CORPORATION
Financial Highlights (Unaudited)
(Dollars in Millions, Except Per Share Data)
Three Months Ended
March 31,
---------
2014 2013 % Change
---- ---- --------
EARNINGS SUMMARY
----------------
Net income $28.4 $27.0 5.2%
Net realized
investment
gains, after tax 1.1 4.4 -75.0%
Operating income (A) 27.3 22.6 20.8%
Per diluted share:
Net income $0.67 $0.66 1.5%
Net realized
investment
gains,
after tax $0.02 $0.11 -81.8%
Operating income
(A) $0.65 $0.55 18.2%
Weighted average number of shares
and equivalent
shares (in
millions) -
Diluted 42.3 41.1 2.9%
RETURN ON EQUITY
----------------
Net income return on equity (B) 9.8% 8.7% N.M.
Operating income return on equity excluding the fair value
adjustment for
investments (A)
(C) 10.8% 9.8% N.M.
FINANCIAL POSITION
------------------
Per share (D):
Book value $29.47 $31.81 -7.4%
Effect of
the fair
value
adjustment
for
investments
(E) $5.20 $9.43 -44.9%
Book value
excluding the
fair value
adjustment for
investments (A) $24.27 $22.38 8.4%
Dividends paid $0.230 $0.195 17.9%
Ending number of shares outstanding
(in millions) (D) 40.6 39.7 2.3%
Total assets $9,083.5 $8,457.4 7.4%
Short-term debt 38.0 38.0 -
Long-term debt 199.9 199.8 0.1%
Total shareholders' equity 1,197.8 1,261.7 -5.1%
ADDITIONAL INFORMATION
----------------------
Exclusive agencies (F) 629 620 1.5%
Employee agents (G) 93 129 -27.9%
Total 722 749 -3.6%
N.M. - Not meaningful.
(A) These measures are not based on
accounting principles generally
accepted in the United States
("non-GAAP"). An explanation
of these measures is contained
in the Glossary of Selected
Terms included as an exhibit in
the Company's reports filed with
the SEC.
(B) Based on trailing 12-month net
income and average quarter-end
shareholders' equity.
(C) Based on trailing 12-month
operating income and average
quarter-end shareholders'
equity which has been adjusted
to exclude the fair value
adjustment for investments, net
of the related impact on
deferred policy acquisition
costs and the applicable
deferred taxes.
(D) Ending shares outstanding were
40,647,979 at March 31, 2014 and
39,667,063 at March 31, 2013.
(E) Net of the related impact on
deferred policy acquisition
costs and the applicable
deferred taxes.
(F) Local Horace Mann agencies
created and owned by independent
contractors who have signed
Exclusive Agent agreements with
the Company ("Exclusive
Agents"). Those agreements state
that only the Company's products
and limited additional third-
party vendor products authorized
by the Company will be marketed
by the agencies. An independent
contractor may sign multiple
Exclusive Agent agreements with
the Company and manage more than
one Exclusive Agency.
(G) Agents who have employee status
with the Company and by contract
market only the Company's
products and limited additional
third-party vendor products
authorized by the Company.
-1-
HORACE MANN EDUCATORS CORPORATION
Statements of Operations and Supplemental Consolidated Data (Unaudited)
(Dollars in Millions)
Three Months Ended
March 31,
---------
2014 2013 % Change
---- ---- --------
STATEMENTS OF OPERATIONS
------------------------
Insurance premiums and contract
charges earned $175.4 $169.2 3.7%
Net investment income 83.0 77.4 7.2%
Net realized investment gains 1.7 6.9 -75.4%
Other income 1.1 1.1 -
Total
revenues 261.2 254.6 2.6%
Benefits, claims and settlement
expenses 112.0 112.7 -0.6%
Interest credited 43.1 41.4 4.1%
Policy acquisition expenses
amortized 23.0 20.1 14.4%
Operating expenses 39.9 38.8 2.8%
Interest expense 3.5 3.6 -2.8%
Total
benefits,
losses
and
expenses 221.5 216.6 2.3%
Income before income taxes 39.7 38.0 4.5%
Income tax
expense 11.3 11.0 2.7%
Net income $28.4 $27.0 5.2%
PREMIUMS WRITTEN AND CONTRACT DEPOSITS
--------------------------------------
Property & Casualty $137.2 $131.9 4.0%
Annuity deposits 100.3 90.2 11.2%
Life 22.8 23.0 -0.9%
Total $260.3 $245.1 6.2%
SEGMENT NET INCOME (LOSS)
------------------------
Property & Casualty $14.0 $10.2 37.3%
Annuity 12.3 11.1 10.8%
Life 3.9 4.3 -9.3%
Corporate and other (A) (1.8) 1.4 N.M.
Net income $28.4 $27.0 5.2%
N.M. - Not meaningful.
(A) The Corporate and Other segment
includes interest expense on debt
and the impact of realized
investment gains and losses and
other corporate level items. The
Company does not allocate the
impact of corporate level
transactions to the insurance
segments consistent with how
management evaluates the results
of those segments. See detail for
this segment on page 4.
-2-
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Three Months Ended
March 31,
---------
2014 2013 % Change
---- ---- --------
PROPERTY & CASUALTY
-------------------
Premiums written $137.2 $131.9 4.0%
Premiums earned 143.9 137.9 4.4%
Net investment income 9.3 9.0 3.3%
Other income 0.2 - N.M.
Losses and loss adjustment expenses (LAE) 95.0 96.4 -1.5%
Operating expenses (includes policy
acquisition expenses
amortized) 39.8 37.7 5.6%
Income before tax 18.6 12.8 45.3%
Net income 14.0 10.2 37.3%
Net investment income, after tax 7.8 7.6 2.6%
Catastrophe costs (A)
After tax 4.1 3.7 10.8%
Before tax 6.3 5.7 10.5%
Prior years' reserves favorable (adverse)
development, before
tax
Automobile 4.0 3.3 21.2%
Property - - -
Total 4.0 3.3 21.2%
Operating statistics:
Loss and loss
adjustment expense
ratio 66.0% 69.9% N.M.
Expense ratio 27.7% 27.3% N.M.
Combined ratio 93.7% 97.2% N.M.
Effect on the
combined ratio
of:
Catastrophe costs (A) 4.4% 4.2% N.M.
Prior years' reserve development -2.8% -2.4% N.M.
Combined ratio
excluding the effects
of catastrophe
costs and prior
years' reserve
development
("underlying
combined ratio")
(B) 92.1% 95.4% N.M.
Policies in force (voluntary) (in thousands) 714 724 -1.4%
Automobile 480 486 -1.2%
Property 234 238 -1.7%
Policy renewal rate (voluntary) - 12 months
Automobile 84.6% 85.0% N.M.
Property 88.9% 89.7% N.M.
N.M. - Not meaningful.
(A) Includes allocated loss adjustment
expenses and, when applicable,
catastrophe reinsurance
reinstatement premiums. For the
periods presented, there were no
reinsurance reinstatement premiums.
(B) These measures are not based on
accounting principles generally
accepted in the United States
("non-GAAP"). See footnote (A) on
page 1 of these supplemental
numerical pages.
-3-
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Three Months Ended
March 31,
---------
2014 2013 % Change
---- ---- --------
ANNUITY
-------
Contract deposits $100.3 $90.2 11.2%
Variable 32.5 30.3 7.3%
Fixed 67.8 59.9 13.2%
Contract charges earned 5.9 5.1 15.7%
Net investment income 55.8 51.3 8.8%
Interest credited 32.3 30.7 5.2%
Net interest
margin (without
realized
investment
gains/losses) 23.5 20.6 14.1%
Other income 0.6 0.7 -14.3%
Mortality loss and other reserve
changes (0.4) (0.3) 33.3%
Operating expenses (includes policy
acquisition
expenses
amortized) 11.8 9.6 22.9%
Income before tax 17.8 16.5 7.9%
Net income 12.3 11.1 10.8%
Pretax income increase (decrease) due to
evaluation of:
Deferred
policy
acquisition
costs $(0.1) $1.6 N.M.
Guaranteed
minimum
death
benefit
reserve - 0.1 -100.0%
Annuity contracts in force (in
thousands) 196 190 3.2%
Accumulated account value on deposit /
Assets under management $5,412.1 $4,927.3 9.8%
Variable 1,745.0 1,508.3 15.7%
Fixed 3,667.1 3,419.0 7.3%
Annuity accumulated value retention - 12 months
Variable
accumulations 94.1% 94.3% N.M.
Fixed
accumulations 95.1% 95.5% N.M.
LIFE
----
Premiums and contract deposits $22.8 $23.0 -0.9%
Premiums and contract charges earned 25.6 26.2 -2.3%
Net investment income 18.1 17.3 4.6%
Other income 0.3 0.4 -25.0%
Death benefits/mortality cost/change
in reserves 16.6 16.0 3.8%
Interest credited 10.8 10.7 0.9%
Operating expenses (includes policy
acquisition
expenses
amortized) 10.6 10.4 1.9%
Income before tax 6.0 6.8 -11.8%
Net income 3.9 4.3 -9.3%
Pretax income increase (decrease) due to
evaluation of:
Deferred
policy
acquisition
costs $ - $ - -
Life policies in force (in thousands) 200 201 -0.5%
Life insurance in force $15,241 $14,701 3.7%
Lapse ratio - 12 months
(Ordinary life
insurance) 4.2% 4.3% N.M.
CORPORATE AND OTHER (A)
----------------------
Components of income (loss) before tax:
Net realized
investment gains $1.7 $6.9 -75.4%
Interest expense (3.5) (3.6) -2.8%
Other operating
expenses, net
investment
income
and other
income (0.9) (1.4) -35.7%
Income (loss) before tax (2.7) 1.9 N.M.
Net income (loss) (1.8) 1.4 N.M.
N.M. - Not meaningful.
(A) The Corporate and Other segment
includes interest expense on debt
and the impact of realized
investment gains and losses and
other corporate level items. The
Company does not allocate the
impact of corporate level
transactions to the insurance
segments consistent with how
management evaluates the results
of those segments.
-4-
HORACE MANN EDUCATORS CORPORATION
Supplemental Business Segment Overview (Unaudited)
(Dollars in Millions)
Three Months Ended
March 31,
---------
2014 2013 % Change
---- ---- --------
INVESTMENTS
-----------
Annuity and Life
Fixed maturities, at
fair value
(amortized
cost 2014,
$5,260.1;
2013, $4,736.2) $5,599.1 $5,312.0 5.4%
Equity securities, at
fair value
(cost 2014,
$35.5; 2013,
$5.5) 33.5 5.2 N.M.
Short-term
investments 22.7 19.6 15.8%
Policy loans 140.7 135.7 3.7%
Other investments 61.6 53.6 14.9%
----------
Total Annuity and Life
investments 5,857.6 5,526.1 6.0%
Property & Casualty
Fixed maturities, at
fair value
(amortized
cost 2014,
$770.9; 2013,
$773.7) 799.3 831.7 -3.9%
Equity securities, at
fair value
(cost 2014,
$49.9; 2013,
$47.6) 60.7 53.5 13.5%
Short-term
investments 16.6 0.7 N.M.
Other investments 30.9 - N.M.
----------
Total Property & Casualty
investments 907.5 885.9 2.4%
Corporate investments 36.2 14.1 156.7%
Total investments 6,801.3 6,426.1 5.8%
Net investment income
Before tax $83.0 $77.4 7.2%
After tax 55.7 52.1 6.9%
Net realized investment gains
Before tax $1.7 $6.9 -75.4%
After tax 1.1 4.4 -75.0%
Per share,
diluted $0.02 $0.11 -81.8%
N.M. - Not meaningful.
-5-
SOURCE Horace Mann Educators Corporation
